Hi and welcome back!
In case you missed it, check out my introductory post last week. You’ll find more information about me and a few of my general philosophies on career fulfillment.
Each week you can expect in your inbox thoughts and conversations around a single career topic. Given how diverse the audience is, topics covered will be a bit broad to start. If you have a question that requires a specific answer, I’d love if you emailed me!
In general, I’d love your feedback (e.g., topic suggestions, request for resources, length/format)
Musings
This week’s newsletter is going to discuss equity compensation. For many of us, as we advance in our careers, the non-cash part of our compensation becomes increasingly important. Not to mention, as the valuations of public and private companies continues to surge, equity compensation can drive a significant part of our savings and wealth accumulation.
In my career zigs and zags, I’ve had many conversations about many types of equity: restricted shares of public stock, private stock options, carried interest. (I won’t go into the mechanics here…Investopedia/Wikipedia are typically more eloquent than I, and math probably isn’t the reason you subscribed to this list.)
But what I’ve found from my own conversations and from those within my network, is that regardless of type of equity, negotiations around the topic can be complex, opaque, and feel somewhat unfulfilling.
A major part of the problem is that equity (or ownership/participation in the future growth of a company) is… kind of an imaginary number
Ok, not exactly an (“i”) imaginary number, but you’re essentially negotiating an amorphous future value
There’s also almost always information asymmetry in negotiating equity. Founders, bosses and executives either have more information or control over the outcomes of the company, or they are so strongly tied to the outcomes of the company that they are biased to be more optimistic about the company than you are.
All negotiations are a give and take, but with equity, it’s particularly difficult, because the value is hypothetical, and the issuer believes its worth more than the recipient.
If this resonates with you, feel free to share:
Conversations
I had a conversation this week with someone who is considering taking the leap from corporate to startup. She had a very successful career in finance and is considering a CFO role at a brand new company. She is excited about the opportunity, but the equity compensation is giving her pause. While she knows that she’ll have to take a major pay cut going from a blue-chip institution to a company that hasn’t raised money yet, the equity component of the offer seems inadequate.
We explored:
Removing the emotion from it, and checking actual third-party benchmarks for early stage employee equity. Thankfully, enough companies and employees have come to terms over imaginary money enough times, that benchmarks exist. (this blog post from Salesflare has some good ranges for employees depending on company size).
Then we did a 180 and dove deep into the emotion of it: why did an offer that seemed low feel so frustrating for her? She worried that her skillset wouldn’t be as valued as say, a technical employee; she had feelings of scarcity - was a small percentage of equity indicative that her opinions wouldn’t be valued? There was so much wrapped up in this offer besides the actual absolute percentage.
We also looked at what the level of equity offered could mean. We discussed how especially in early stages, the CFO role could vary greatly from company to company. It could entail a small function (managing bookkeeping, opening bank accounts), to being the ‘catch-all’ role for every operational responsibility besides technology (the CTO’s focus) and fundraising (the CEO’s focus); it seemed like some clarification of the role and of the CEO’s expectations was required
In early stage companies, it can often feel odd to negotiate specifics over an asset in something that hardly exists. In later stage companies, it can feel odd to negotiate over outcomes that you don’t feel like you have a direct impact on.
Equity compensation is more than dollars, it’s tied to the desire to feel valued (especially over the long term), to feel like the team and the company will operate fairly, and its an indication that the expectations of you and your role are consistent between you and your company.
Some other food for thought:
Consider the position and structure of your company. What is actually in the realm of possible for the company to share in terms of equity, and what are the long term risks and considerations they might face? Momentary empathy for what the other side is thinking in a negotiation can take you out of the emotions of feeling inadequate or wronged. (I’ve shared a good article in the Resources section below for the employer’s take)
Maybe not now, but what about later? At the beginning, there’s plenty of unknown on both sides. If there is a disconnect about equity right now, and you can’t get the number you want now, it’s fair to ask about the timeline to future equity. Laying out general milestones is a good way to align expectations and see if your company has a long-term view on the development of your role and your ownership.
Resources/Links
For the employer’s take: “The Right Way to Grant Equity to Your Employees” from Wealthfront founder Andy Rachleff; good discussion on benchmarks, and evergreen grants (equity grants over time)
Carta has a great “Startup Equity Calculator”, and is generally a great source for all things related to equity
Cool ladies doing cool things: Chandro Tomar, feminist icon and the oldest professional sharpshooter in the world (she is 89!!)
Tell me about you
What has contributed to your successful negotiations over equity compensation?
When have compensation discussions felt ‘unfair’ or misaligned? Did you ultimately come to a resolution?